Stock markets are likely to remain upbeat in
2014 after modest gains in the last year, experts say, while putting
across a particularly bullish outlook for sectors like IT and
pharmaceuticals. The BSE IT index emerged as the best performer among
the 13 sectoral indices, outperforming the benchmark index Sensex, in
2013. The gain of 59.52 per cent in IT sector index was way ahead of the
Sensex's nearly 9 per cent rise. Among major gainers from the IT
sector last year, TCS, Infosys and Wipro shot up by 71 per cent, 51 per
cent and 40 per cent, respectively. Besides, the healthcare index
soared higher by 22.29 per cent while FMCG sector was up 11 per cent
last year. "We expect continued out-performance from IT and pharma
given the weak macro-environment. However, sectors like financials,
despite asset quality concerns, and other rate-cyclicals, are likely to
remain in focus, given the expectations of economic recovery and a turn
in investment cycle," said Tirthankar Patnaik, Director-Institutional
Research, Religare Capital Markets. A better-than-expected US recovery
may accelerate tapering process, leading to renewed pressure on all
emerging market currencies, both of which augur well for IT and pharma,
he said. IT stocks rose sharply this year on the back of a better
macroeconomic environment in their major market US and due to gain from
rupee depreciation. The rupee fell sharply by 12.54 per cent last year.
Technology stocks were beaten down during 2012, mainly on account of
Euro zone crisis. "IT sector has outperformed in 2013, leaving behind
other sectors by greater difference. The key reason has been
strengthening of dollar, which improved the profit margins, and also
improving demand in global markets. So, we expect IT sector will perform
well in 2014 as well, as the trend is expected to continue," said Nidhi
Saraswat, Senior Research Analyst, Bonanza Portfolio. Another sector
which is a consistent performer is pharma. The companies are exploring
newer markets worldwide. Cost control and margin improvements will augur
well for the sector, she said. According to Varun Goel, Head PMS,
Karvy Stock Broking: "With interest rates not expected to increase a
lot, we have turned positive on rate sensitive sectors like banks and
auto. Public sector banks are trading at quite cheap valuations and we
expect significant out-performance from that space in the next two to
three years." "Expect export oriented sectors like IT to continue to
benefit from rupee depreciation seen last year. Telecom is another
sector which might deliver strong earnings due to return of pricing
power and reduction in competitive intensity," Goel added.
Another analyst, Paras Bothra, VP, Equity Research Ashika Stock Broking said "IT, financials (on interest rates coming lower and economy picking up) and beaten down infrastructure stocks will be the biggest out-performers for 2014. "IT seems to be the most confident of all and is completely insulated from vagaries of domestic turbulences if any," he said. Marketmen believe that growth phase coming back in the US will benefit IT companies the most. On sectors that are likely to lag behind in the New Year, Saraswat said, "Real estate, oil and gas sectors are likely to under-perform in 2014 due to policy hindrances and sluggish demand. Also, we maintain cautious outlook for banking sector, due to rising NPAs in most banks and also due to rising interest rates environment." Marketmen said the key events to watch out for in 2014 are the Union Budget, general elections, global growth and consequent US taper. "While we think it is unlikely, we remain watchful of any fiscal expansion by the government before the general elections," Patnaik said. "The key market drivers in 2014 would be the local inflation trend, Lok Sabha elections and the pace of recovery to potential GDP growth levels. In the near-term, we would expectantly look at Q3 earnings where we believe the lack of a festive season boost could dampen growth (and therefore earnings)," he added. According to Saraswat: "Trend in inflation, rupee and interest rates will impact market trend. Global market cues, FIIs investments and signs for economic improvement, all these will play important role in coming year." On the outlook for 2014, Saraswat said: "Markets are following long-term uptrend. In 2014, we expect Sensex to gain around 11-13 per cent, which means it has likely target of 23,000-23,700. Also, the downside seems limited up to 5-7 per cent, with Sensex having good support near 19,500". "First half of 2014 will be highly volatile for obvious reasons like the legislative election, expectation of monsoon and tapering effect of US Federal Reserve. But the year end is likely to be 7,000 plus for Nifty, on back of growth returning, interest rates coming lower and inflation remaining benign." Bothra added.
Another analyst, Paras Bothra, VP, Equity Research Ashika Stock Broking said "IT, financials (on interest rates coming lower and economy picking up) and beaten down infrastructure stocks will be the biggest out-performers for 2014. "IT seems to be the most confident of all and is completely insulated from vagaries of domestic turbulences if any," he said. Marketmen believe that growth phase coming back in the US will benefit IT companies the most. On sectors that are likely to lag behind in the New Year, Saraswat said, "Real estate, oil and gas sectors are likely to under-perform in 2014 due to policy hindrances and sluggish demand. Also, we maintain cautious outlook for banking sector, due to rising NPAs in most banks and also due to rising interest rates environment." Marketmen said the key events to watch out for in 2014 are the Union Budget, general elections, global growth and consequent US taper. "While we think it is unlikely, we remain watchful of any fiscal expansion by the government before the general elections," Patnaik said. "The key market drivers in 2014 would be the local inflation trend, Lok Sabha elections and the pace of recovery to potential GDP growth levels. In the near-term, we would expectantly look at Q3 earnings where we believe the lack of a festive season boost could dampen growth (and therefore earnings)," he added. According to Saraswat: "Trend in inflation, rupee and interest rates will impact market trend. Global market cues, FIIs investments and signs for economic improvement, all these will play important role in coming year." On the outlook for 2014, Saraswat said: "Markets are following long-term uptrend. In 2014, we expect Sensex to gain around 11-13 per cent, which means it has likely target of 23,000-23,700. Also, the downside seems limited up to 5-7 per cent, with Sensex having good support near 19,500". "First half of 2014 will be highly volatile for obvious reasons like the legislative election, expectation of monsoon and tapering effect of US Federal Reserve. But the year end is likely to be 7,000 plus for Nifty, on back of growth returning, interest rates coming lower and inflation remaining benign." Bothra added.
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